Accidental American Taxes: Compliance & IRS Rules
Imagine living abroad your entire life, never setting foot in the US, only to discover you owe thousands in penalties for unfiled US taxes. This is the reality for many Accidental Americans. In this guide, we’ll look at why you’re subject to US taxes and how you can get compliant without the usual penalties.
Key Takeaways
- Accidental Americans are US citizens who live abroad and are unaware of their American taxpayer status.
- Accidental Americans have the same US tax obligations as any other US taxpayer earning in the US.
- Streamlined Filing Compliance Procedures are a pathway toward compliance and might help you avoid late filing, payment, and information return penalties.
What Is an Accidental American?
An Accidental American is someone with US citizenship by birth but no real ties to the US. Despite this, the IRS requires them to file US taxes and report foreign income. This often happens if:
- You were born in the US but left as a child
- You were born abroad to a US citizen parent
If you’ve found out you’re an Accidental American, you will have to comply with US tax law to avoid penalties. That means:
- Filing a US tax return (Form 1040)
- Reporting your non-US bank accounts (FBAR & FATCA)
Use IRS amnesty programs to skip the usual fines for non-compliance
Why Are Accidental Americans Subject to US Taxes?
Accidental Americans are subject to the same US tax obligations as any other American. Unlike most countries, the US uses citizenship-based taxation. If you’re a US citizen, the US taxes your worldwide income, no matter where you live or where the money came from. Recently, the IRS has ramped up enforcement under the Foreign Account Tax Compliance Act (FATCA). This includes auditing Accidental Americans with unreported foreign income.
Myth vs. Reality
There are plenty of myths about US taxation for Accidental Americans. Let’s debunk some of the most common.
- Myth: “I don’t live in the US, so I don’t owe US taxes.”
- Reality: If you hold US citizenship, you must file taxes, even if you’ve never lived in the US
- Myth: “If I ignore US taxes, the IRS won’t come after me.”
- Reality: The IRS enforces compliance in several ways, including through FATCA (Foreign Account Tax Compliant Act) laws, which require foreign banks to report US citizens’ accounts.
- Myth: “I will automatically lose US citizenship if I don’t file taxes.”
- Reality: Citizenship remains unless you formally renounce it and comply with IRS exit tax rules. However, you may lose your passport if you don’t file taxes.
- Myth: “I have dual citizenship, so I don’t need to file US taxes.”
- Reality: US law does not recognize dual citizenship for tax purposes. If you are a US citizen, you must file unless you renounce.
- Myth: “Only wealthy Americans abroad must report foreign bank accounts.”
- Reality: Anyone with $10,000+ in total foreign accounts must file a Foreign Bank Account Report (FBAR)
- Myth: “Filing past due taxes means I’ll face massive IRS penalties.”
- Reality: Many Accidental Americans qualify for the Streamlined Filing Compliance Program, which waives penalties if you file voluntarily.
Accidental American Tax Obligations
Accidental Americans face the same tax rules as any US taxpayer. Here are the most common forms you may need to file:
- IRS Tax Return (Form 1040): This form is required every year, no matter where you live.
- Foreign Bank Account Report (FBAR): Reports foreign accounts totaling $10,000+ at any point in the year. This is due April 15 or June 15 if you live outside the US and Puerto Rico.
- FATCA Report (Form 8938): Used to disclose foreign assets above thresholds — e.g., $200,000 for single filers living abroad or $50,000 if living in the US. This is filed with your 1040.
How to Become Tax Compliant
The IRS offers the Streamlined Filing Compliance Procedures to help Accidental Americans catch up penalty-free. To qualify, you must:
- Live outside of the US
- Have a valid Social Security number or Individual Taxpayer Identification Number (ITIN)
- Not under an active IRS audit or criminal investigation
- Certify that your failure to file was non-willful (due to negligence, mistake, or a good faith misunderstanding of the law)
To use this system, you will submit tax returns for the last three years and file FBARs for the last six years. For the three years you are filing tax returns, you must have physically been outside of the US for at least 330 days for at least one of those years. If your failure to file was willful, you can use the Voluntary Disclosure Program to inform the IRS, which may reduce (but not erase) penalties.
If you choose to relinquish your US citizenship, you may have to pay an exit tax to cover your outstanding taxes. Relinquishing citizenship erases future tax liabilities but does not excuse all unpaid liabilities. It may also result in having to continue to file US tax returns and pay more tax than when you were a US citizen. Planning such a move is critical, and Greenback can help with every step of the process.
Comparison of Compliance Options
| Compliance Option | Who Qualifies? | Benefits |
| Streamlined Filing Compliance Procedures | Non-willful tax non-filers | Avoids penalties |
| Voluntary Disclosure Program | Willful tax non-filers | Reduces penalties, legal risks remain |
| Relinquishing US Citizenship | Those wanting to permanently renounce citizenship | Ends US tax duties (exit tax may apply) in many situations, but not all |
If you’re behind on your US taxes, you may qualify for a special compliance program to get back on track without penalties. Download our Streamlined Filing Eligibility guide to understand if you qualify.
Penalties & Risks for Non-Compliance
Ignoring US tax obligations carries steep risks. Penalties include:
- Failure to file tax returns: The IRS can seize assets or levy wages, with penalties of 5% monthly (up to 25%) on unpaid taxes.
- FBAR penalties: Up to $12,500 per year, escalating to $100,000 or 50% of the balance for willful failure.
- FATCA crackdowns: Banks may freeze your accounts for non-compliance under international agreements. Penalties start at $10,000 per year and can quickly increase.
How Likely Am I to Be Audited?
- Have you ever received a notice from the IRS?
- Have you received a notice from your non-US bank asking you to provide your US social security number or to certify your US citizenship status?
- Do you have foreign accounts over $50,000?
- Have you lived abroad for five or more years without filing?
If you check any of these boxes, your audit risk rises — act now to reduce the risk.
How to Reduce Accidental American Tax Liability
The IRS provides several options to reduce or erase your US tax bill as an Accidental American.
- Foreign Earned Income Exclusion (FEIE): This lets you exempt up to $130,000 of your foreign income from US taxation in 2025. (The maximum exemption changes each year to account for inflation, up from $126,500 for the 2024 tax year)
- Foreign Tax Credits (FTC): This credit offsets US taxes with taxes paid abroad, claimed via Form 1116. For example, if you paid $10,000 in taxes to another country, you could deduct $10,000 from your US bill.
Using these tax benefits, many Accidental Americans end up owing little or no US taxes.
We Have Helped Many Accidental Americans Get Caught Up. We Can Help You, Too!
Several avenues are available to get caught up with US filing obligations that do not necessarily involve paying hefty penalties to the IRS. Greenback can help guide you through the process of what works best for you to become compliant with your US taxes.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
